Investing in Climate Change

Breaking Down ESG: Environmental Investing


When the Paris Agreement was unveiled in December 2015, many around the world celebrated its goal of limiting the rise in the earth’s temperature to 1.5 degrees Celsius. Many scientists and other experts believe that such efforts will help slow climate change, which the European Commission cites as the driving force behind rising sea levels, increases in severe weather occurrences, and societal, economic, and wildlife crises worldwide.

Investors have recognized their role in mitigating climate change, too. Here’s a look at the basics of environmental investing and how it seeks to protect the planet and the people on it.

Putting the “E” in ESG

Along with social (S) and governance (G) matters, environmental (E) concerns comprise the ESG investing discipline that’s gaining traction worldwide.

In fact, given its far-reaching consequences, many investors emphasize the environment above all else. The Forum for Sustainable and Responsible Investment (US SIF) found that at least one-quarter of the $12 trillion invested in sustainable, responsible, and impact investing assets were dedicated to climate change–related investments.

That said, environmental investing does not adhere to a simple definition. Instead, it encompasses a broad spectrum of themes, ranging from renewable energy generation and water use and conservation to green construction practices and sustainable agriculture.

Given the depth, complexity, and ripple effects of today’s environmental challenges, research into these issues and related investment opportunities is often a key step for investors looking to focus their thinking and priorities.

How Do Investors Support the Environment?

Rising awareness of the dangers of climate change means that investors have a range of opportunities for supporting the planet. As a result, individuals interested in traditional equity investing may buy shares in companies that create innovative sustainable technologies or invest in a mutual fund or exchange-traded fund designed around a climate-oriented theme. Fixed income investors may purchase green bonds, which finance initiatives that target environmental impacts while offering competitive yields. Environmental considerations also continue to gain stature in private equity, real estate, and other alternative investments.

Beyond choosing investments, some investors opt to make an environmental impact by divesting from fossil fuel companies. Other investors hold onto fossil fuel shares in order to influence companies to improve their environmental footprints through shareholder engagement strategies like dialogue and proxy voting.

In 2020, the world will celebrate the 50th anniversary of Earth Day, an event that has blossomed from a 20-million-person protest in the US to a global phenomenon observed by more than one billion people. As environmental traction grows, investment options have also matured throughout the world’s financial markets to meet the demands of the environmentally-minded.

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